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May 05, 2009

Comments

There is no need to argue why this obvious conflict of interest is a bad thing, and by doing so you undermine your critical point. His intentions and moral compass are completely irrelevant. This is A + B = C.

Just to play Devil's Advocate here for a moment, what was the alternative? If you think back to the events of last fall, turning down Goldman's request would have been extremely problematic, given all of the other conversions that were being approved. Further, there's no real evidence that becoming a bank holding company has done Goldman much good. It mostly turned into a conduit for giving them money that they didn't need, and that they since have declared that they didn't want.

There are a number of problems here, but I think that they are substantially more complicated than a simple conflict of interest. Pretending that an investment bank like Goldman was ever not deeply concerned with Fed policy, holding company or not, is silly. However, the very nature of the Fed guarantees that the big banks are going to have seats on the Fed's board.

Dealing with this would require an overhaul of the financial regulatory system far more thorough than anything that's been contemplated up to this point. Given my pessimism about getting anything meaningful through Congress on less complicated than this, I'm inclined to pretend I don't notice this, because making an issue of it can only make it more difficult to get anything useful done.

JMN: From the WSJ article:

"The regional Fed banks have three classes of directors: Class A, elected by member banks and representing them; Class B, elected by banks but representing the public; and Class C, representing the public but picked by the Fed. Under law, directors in Class C, including Mr. Friedman, and Class B can't be officers or directors of banks, and Class C directors like Mr. Friedman also can't own shares of banks. This means not of bank holding companies, either, by the Fed's interpretation of the 1913 law."

The banks will always have seats at the table, and it is set up that way. But he was meant to be occupying one of the other seats.

Also: there is an obvious alternative here, namely: ask him to divest himself of the Goldman stocks.

there is an obvious alternative here, namely: ask him to divest himself of the Goldman stocks.

Bingo. Thank you.

Follow the money. That's all that matters in politics today. Yes, that's a simplistic view. But it works very, very, very well in explaining 90% of what goes on.

That it - come to think of it - why I stopped being a libertarian some time ago - von's 'classic conservative'.

The banks will always have seats at the table, and it is set up that way. But he was meant to be occupying one of the other seats.

I'm maintaining that this is a false distinction. Mr. Friedman was a Class C director already, despite sitting on the board of Goldman and owning Goldman stock. The only thing that changed was that Goldman became a bank holding company. To me, the idea that there is any additional conflict of interest because of this than there was when Goldman was just a huge investment bank, hedge fund, and several other sorts of major financial arms, is just silly.

If there is a problem with a conflict of interest here, then it exists because the Class C directors have ties with any financial company. The drawing line that exists is meaningless.

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